Continuing Duty of Performance of Equipment

A recent case in the High Court contains some interesting comments on the extent to which an obligation to provide equipment on hire of satisfactory quality and/or fit for purpose extends beyond the initial point of delivery.

The starting point is section 9 of the Supply of Goods and Services Act 1982 which provides: –

“Where… the bailor bails goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality” and reasonably fit for purpose.

Section18(3) of the 1982 Act then provides that “for the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods … durability.”

Of course almost all Hire and Hire Purchase agreements will contain exclusion clauses seeking to oust this responsibility, but such clauses are subject to statutory control by the Unfair Contract Terms Act 1977 which imposes a requirement of reasonableness – which in many cases not involving sophisticated parties of equal bargaining position may be difficult for the Funder to satisfy.

Thus where an obligation to provide equipment of satisfactory quality and fit for its purpose does exist, the question sometimes arises to what extent that obligation continues after the initial delivery of the equipment.

There was no direct authority on the point, but it arose for decision in the recent case of Stoke-On-Trent College v Pelican Rouge Coffee Solutions Group Limited [2017] EWHC 2829 (TCC).

This was a very unusual case in that it involved the free on loan supply of a drinks vending machine under a 1999 Agreement in which the lessor undertook to provide the machine for a period of three years, together with service and insurance, in return for a fixed price per unit sold. There was no attempt to exclude liability by the lessor.

In the event the parties continued the arrangement way beyond 2002 without entering into any further documentation, and at trial it was common ground that the parties had continued to act on the basis of the original 1999 Agreement.

The judge analysed the question of the extent to which the lessor’s obligation to supply equipment of satisfactory quality and/or fit for its purpose continued beyond the point of delivery as follows: –

“131 …[the] question which arises in this case is whether or not the statutory duty in relation to hire contracts to supply goods of satisfactory quality is a once-and-for all duty at the time of first hire or an ongoing duty which subsists without reference to the length of the hiring over the whole hire period. Of course the reference to durability in the definition confirms what was always known to be the position in relation to contracts of hire as much as contracts of sale and other associated contracts, namely that a defect emanating at some time after the original supply may demonstrate that the goods supplied were not satisfactory as at the date of original supply, either as a matter of evidential inference or by reference to their lack of durability: see the discussion in Chitty on Contracts at paragraph 33-073.

132 This issue arises in more acute form in this case because of what I suspect are the relatively unusual facts of this case involving, as they do, a supply over an extended period of approximately 13 years from around 1996 to the date of the fire in December 2009. Can it be inferred in the absence of clear evidence as to precisely how or why a fire developed in the electrical components of the drinks vending machine that an incendive electrical fault emanating 13 years after first hire in itself renders the drinks vending machine unsafe or of insufficient durability? In my view the answer must depend on a proper analysis of the contract of hire in question. In a typical long term equipment hire case the obligation is to supply a particular item which the hirer is entitled to retain in his possession throughout the duration of the contract of hire. The owner would not be entitled to require the hirer to accept a replacement in the absence of some express term to that effect. A paradigm case would be a business contract for the long term hire of a motor car. In such a case I am satisfied that s.9(2) only imposes an obligation as at the time of first hire. Although there is no authority which counsel or I have been able to locate which deals with or expressly decides the point, in my view it is clear that the obligation in s.9 that “the goods supplied under the contract are of satisfactory quality” is not in such a case a continuing obligation in the sense that it continues throughout the whole period of the contract, however long. There is no continuing obligation to supply; the obligation is to supply and then to permit the hirer to retain possession until the hire terminates. The satisfactory quality obligation in relation to such contracts of hire is assimilated to the obligation in relation to contracts of sale and contracts of hire-purchase. As regards the former, there can of course be no continuing obligation, since the sale transaction is complete once the sale has occurred. As regards the latter, which is a continuing relationship in the same way as is a hire contract, there is no authority in support of the proposition that there is a continuing obligation.

133 However the contract in this case is significantly different. It is to provide “free on loan vending equipment to the client at [agreed] locations” for the duration of the contract. The defendant was entitled to perform this obligation by supplying any rebuilt drinks vending machine to the alcove location; it was not obliged to keep the same machine in the same location for use by the claimant or its visitors for the duration of the contract. It follows in my view that there was a mutual intention that the obligation was to continue to supply a drinks vending machine for use at this location for the duration of the contract. In my view it follows that the obligation to supply a drinks vending machine of satisfactory quality was also a continuing one”.

Comment

Although this decision is restricted to the rather unusual facts of the long term provision of equipment free on loan, the judge’s analysis suggests that in the more typical position in leasing the obligation to supply equipment of satisfactory quality and fit for its purpose will not extend much beyond the point of delivery.

In practice this decision is welcome because it emphasises that the onus will normally be on the lessee to establish by expert evidence that defects in the performance of equipment which arise some time after delivery were in fact present at the point of delivery, albeit latent at that point.

Against this the lessor may well be able to introduce expert evidence suggesting that any faults in the equipment arose only at a later stage and/or were the result of the lessee’s failure to maintain and service the equipment in accordance with its contractual obligations.